Economics Marathon (2 Viewers)

[ScottyG]

Re: Economics Marathon - The 2006 Version

Automatic stabilisers are non-discretionary fiscal devices that attempt to smooth out fluctuations in a nation's economic cycle.

Specifically, automatic stabilisers refer to the changes in government taxation revenue and welfare spending that are dictated primiarily by the level of economic activity, local/global aggregate demand and unemployment. In times of economic prosperity and strong aggregate demand, i.e. a boom, taxation revenue generally rises, while welfare spending typically falls. This is a counter effect, leading to a more contractionary fiscal policy which offsets rising aggregate demand (hence a smoothing effect).

When the economy enters a downswing, the assosciated fall in aggregate demand and economic activity sees a rise in government welfare spending. This is because the demand for labour is a derived demand, hence a reduction in consumption will create unemployment, and necessitate the need for increased transfer payments. Similarly, government taxation revenue will fall. This too is a counter effect, since a greater proportion of funds is now being injected into the economy, and a smaller proportion being leaked. This has an expansionary effect on the economy, and once again shows the effect of automatic stabilisers in their goal of smoothing fluctuations in the economic and business cycle.

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All of the top of my head, but I shouldn't be too far off the mark! (or so help me god i'll burn someone's kitten).

How's about...

Discuss the likely effects on the Australian economy of an RBA decision to tighten monetary policy (i.e. raise interest rates.)

 

[Sparcod]

Re: Economics Marathon - The 2006 Version

If the RBA tightens monetary policy,
there'll be a fall in business investment and consumer spending. Hence, economic growth falls and unemployment rises but inflation is held down.


Describe microeconomic reform and how its used on product/factor markets

 

[onebytwo]

Re: Economics Marathon - The 2006 Version

MER targets the supply side of the economy and aims at improving productivity, efficiency (A,T,D), and overall level of competitiveness - all on the industry level. puts downward pressure on inflation....
cant go on.

 

[fishy89sg]

Re: Economics Marathon - The 2006 Version

any preliminary HSC questions?

 

[Sparcod]

Re: Economics Marathon - The 2006 Version

You've finished the prelim. course anyway.

?Explain the competition policy thats enforced by the ACCC?

 

[aileenli]

Re: Economics Marathon - The 2006 Version

alright, i can't ans sparcod's question, but can i put in a question anyway??

what is the prices and incomes policy???

 

[foofoo_16]

Re: Economics Marathon - The 2006 Version

Hey does anyone know what the Natural Rate of Unemmployment is and the NAIRU???

 

[Sparcod]

Re: Economics Marathon - The 2006 Version

What is the prices and incomes policy?
A policy implemented by the government to control inflation by restraing the growth of prices and wages.

am i right?


Next Q.
In what ways does monetary policy affect economic actvity and exchange rate?

 

[Dimsimmer]

Re: Economics Marathon - The 2006 Version

Hmm, im not 100% sure, but ill have a go.

Q. In what ways does monetary policy affect economic activity and exchange rate?

A. By using monetary policy to raise the cash rate, the RBA reduces the money supply and also it restrains demand for consumption and investment. This can reduce the aggregate demand which is proportional to the level of economic growth. Therefore, this monetary policy decision reduces economic activity.
In additon, this policy action restrains inflation, which can increase international competitiveness since inflation could be lower in comparison with its trading partners. If this is the case, then there would be more demand for $A, causing it to appreciate.

Also, by reducing the cash rate, the RBA increases the money supply, which attracts demand for consumption and investment. This can increase aggregate
demand. Hence, by lowering interest rates, economic activity increases.
In addition, inflation could be higher due to the increase in consumer spending since excessive demand causes inflation. This can reduce international competitiveness since foreigners would perceive our exports to be dearer, which reduces demand for $A causing it to depreciate.

Next Question:
Explain how the rate of economic growth influences the level of unemployment?

 

[fishy89sg]

Re: Economics Marathon - The 2006 Version

i know this one!!

Explain how the rate of economic growth influences the level of unemployment?

when an economy is in the upswing or peak, generally wages and inflation rise and unemployment falls becuase of employers securities about the future

in a downswing or recession unemployment rises as people buy less and businesses shutdown, causing transmissionary channels. government needs to intervene to provide more social secutiry benefits or other things to stimulate the economy


Q. What is globalisation (im serious i want to know pls)

 

[Sparcod]

Re: Economics Marathon - The 2006 Version

Globalisation??? Fishy, calm down, you've got a year ahead of ya.

The increasing interdependence of economies and thus becoming more and more integrated and becoming a single marketplace.


QWhat are public goods and what is the free-rider problem??

 

[Dimsimmer]

Re: Economics Marathon - The 2006 Version

Q. What are public goods and what is the free-rider problem?

A. Public goods are goods or services whose benefits cannot be restricted only to purchasers. The free rider problem is where there is too much incentive to benefit without paying.

Next Question:
Describe the causes and relationships between economic growth and external stability?

 

[onebytwo]

Re: Economics Marathon - The 2006 Version

Next Question:
Describe the causes and relationships between economic growth and external stability?

economic growth refers to sustained increases in domestic output over time. it is caused genrally by increased standards of living, higher real wages, economic development etc. external stability refers to the situation where the external sector does not create significant concerns over the level of foreign debt, CAD, liabilities and volatility of the exchange rate.
during periods where the rate of internal growth exceeds external growth, external balances generally tend to deteriorate as the BOGS worsens with increased imports. however, economic growth can generally lead to increased foreign investor confidence and an apreciation in the domestic currency. this provides further incentive to import further worsening the CAD and making exports less competitive. EG is associated with increased inflation, which may force the RBA to tighten monetary policy, which leads to incresed foreign investment and at the same time a dampening of internal demand...
cant think of anything else atm...

 

[Sparcod]

Re: Economics Marathon - The 2006 Version

Help me....(remember, DO correct someone if he or she is wrong)

An increase in demand for Australian exports will increase the demand for $A on the forex market and this'll appreciate the value against Australia's trade partners.

How can government policies be used to reduce inequality of income distribution?

 

[P_Dilemma]

Re: Economics Marathon - The 2006 Version

How can government policies be used to reduce inequality of income distribution?

a) Government can tax income earners on a progressive tax system and directly redistribute the income amongst lower income earners.

b) Better education of the workforce, so that potential low income earners are equipped with the skills to become higer income earners.

There are other factors, of course, but their effects are blurred. EG, expansionary fiscal policy will increase incomes across the board, but it will most likely be more profound among high income earners compared to low income earners, thereby widening the inequality of income distribution.

NEXT QUESTION: Briefly descibe the main goals of government macroeconomic policy.

-P_D

 

[onebytwo]

Re: Economics Marathon - The 2006 Version

NEXT QUESTION: Briefly descibe the main goals of government macroeconomic policy.

macroeconomic policy aims at stabilising the fluctuations of the business cycle in an attempt to prevent excessive inflation rates or reduce high unemplyment levels in the eonomy as a whole. macro eco. policy includes the mainly the use of monetary and fiscal policies. MP is carried out by the RBA which aims at maintaining the prosperity of australians, stability of the currency and maintain full employment as outlines in the Reserve Bank Act (or something). inflation targetting of 2-3%. fiscal policy refers to govt spending, an attempt to increase or reduce aggregate demand. the budget can be in deficit (expansionary) where gov spending >gov revenue or surplus(contractionary) where gov spending<gov revenue.
EDIT:question
explain the difference between economic growth and economic development and how they are related.

 

[Sparcod]

Re: Economics Marathon - The 2006 Version

Economic growth is considered to be the change in gross domestic product in real terms per capita (adjusted for inflation) and is the quantitative measure of an economy's performance.

Economic Development is the qualitative measure of an economy's performance that takes into account the quality of life such as education and health measures as well as GDP per capita.

Economic growth and high GDP is usually linked with high economic development as they fuel each other.
EG good education ensures high productivity



Question: IDENTIFY THE CAUSES OF INFLATION

 

[Uni]

Re: Economics Marathon - The 2006 Version

IDENTIFY THE CAUSES OF INFLATION

The main causes of inflation are:
1. Demand-pull, which occurs as a result of an increase/excess in agreggate demand. Simply put, consumers have too much money and not enough to spend it on, and thus are happy to pay MORE for the things they already purchase (such as those products which make up the CPI basket). Essentially, the closer the economy gets to full employment (NAIRU), the steeper the aggregate supply curve will be. thus, any increase in demand will produce a large increase in inflation. Demand pull inflation is thus characterised by high economic growth and low unemployment.

2. Cost-push inflation, including "supply-side shock". this is the result of a decrease in the level of supply within an economy, most often resulting from supply side constraints such as the increasing cost of production. The main causes of cost push inflation are wage rises in excess of productivity improvements (this was the case when wage rises were pegged to inflation, and resulted in a wage-cost spiral), and increase in the cost of raw materials (as has been seen recently with the spike in oil prices causing a general rise in products which depend on it for production, such as plastics and petrol), a hiking of taxes, the cost of which is passed on to the end consumer, or an increase in the cost of shipping and transport (again, oil prices come to mind here)

3. Imported inflation. This occurs as a result of higher prices for imported goods. This can be caused by many things, including an increase in the cost of raw materials overseas, an increase in global demand (which may or may not be reflected in the domestic market), the imposition of a tariff, or a depreciation of the $A

QUESTION: List the benefits on income inequality


Uni/.

 

[Sparcod]

Re: Economics Marathon - The 2006 Version

Benefits of income inequality??
1.Incentive/Motivation Effect

.People undertake more education and training in the hope of becoming skilled and earning higher incomes. An overall improvement in the education/skills of the population will improve productivity and raise GDP.

.An incentive for entrepeuners to undertake risks and invest and this'll lower unemployment and raise GDP.

.An incentive for workers to work longer and harder and this'll improve productivity.


2.Increased savings
As the higher income earners can save and increased savings will lower cost of credit and thus wil lead to more investment and lower CAD as Australia relies less on foreign funds.


Q: What are the advantages of prices and incomes policies?

 

[onebytwo]

Re: Economics Marathon - The 2006 Version

Q: What are the advantages of prices and incomes policies?

it controlled wage demands from trade unions and created less inflationary expectations, thus preventing wage-inflation spirals. it allowed thord parties to settle industrial disputes such as the AIRC. protected low income earners with little bargaining power from others with trade union representation. it created less disputes and allowed more govrnement assistance in labour market programs such as jod creation and training schemes.

NEXT QUESTION: explain why the 'outlays' approach to CPI determination implemented by the ABS prior to 1998 was not an appropriate method of calculation.